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U.S. Jobs Market Remains Strong

Daily Analysis - 06/08/2017

Trade Deficit, Factory Orders Boost Investor Sentiment

The U.S. labor market continues to remain strong, while June’s smaller than anticipated trade deficit suggests that the measurement may add a touch of shine to second quarter growth figures. Factory orders rebounded during the month after retreating in each of the previous two months, gaining at a healthy 3.00% monthly rate.

Last Week

For the second straight week, the Dow Jones Industrial Average outpaced the S&P 500, with the former breaking above a key milestone at 22,000 for the first time on Wednesday, and ending at a record high on Friday. Friday's U.S. jobs report was the highlight of the prior week, with data showing that the economy added 209,000 jobs in July, easily topping the consensus expectation of 180,000. The unemployment rate sank to 4.30%, its lowest level since 2001, as monthly job gains continued to exceed the 200,000-mark - the fifth time of the seven non-farm payrolls reports released this year.

Shifting gears, Chinese fundamentals remain on shaky ground, with data showing growth in the manufacturing sector that cooled off in July amid tepid foreign demand for Chinese goods. The official manufacturing PMI came in at 51.4, down from the prior month's 51.7. The GBP was the other notable mover this week, with the sterling tumbling to its lowest level against the euro since November of last year after the Bank of England left interest rates unchanged and revised down its outlook for the U.K. economy. Accordingly, the central bank slashed its current year growth forecast to 1.70% from the 1.90% projected in May.

The Week Ahead

Data this week will be predominantly focused on global trade balance, inflationary trends, an interest rate decision, and manufacturing output, with announcements coming from major economies around the world. Starting with China, trade balance figures for the month of July will be forthcoming, with expectations for year-over-year exports to climb 10.90% in dollar terms alongside imports rising by 16.60%. Apart from trade balance, the producer price index is likely to grow at an annualized pace of 5.50% in July, while consumer prices are forecast to edge 1.50% higher.

Meanwhile, the Reserve Bank of New Zealand’s latest monetary policy committee meet should see the official cash rate on hold at 1.75%. Moving eastward, the euro zone’s biggest economy, Germany, will report foreign trade figures for June, with exports projected to decline -0.10% monthly and imports expected to rise 0.20%. In the U.K., industrial production data for June will be in focus, with year-over-year output likely to contract by -0.20%. Finally, the U.S. will round out the week with its consumer price indices on a core and headline basis, both of which are expected to climb at an annualized rate of 1.80% in July.

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